Charles Arlinghaus: Don't believe hype on Medicaid expansion

The debate over Medicaid expansion is misleading simply because the expansion doesn't do what supporters think it does. Experience shows that it does almost the opposite of what they intend: it doesn't affect the uninsured and doesn't reduce uncompensated care costs that are passed on to those with private insurance. The experience of two neighboring states, Maine and New Hampshire, should be studied.

Supporters of Medicaid expansion truly don't understand how anyone might possibly oppose expansion. In their minds, it must be politics. They sincerely believe that an expansion would simply shift people who currently don't have insurance into the Medicaid program, covering more people and reducing the uncompensated health costs that are passed on to those with private insurance.

Those of us who are skeptical to some degree or another about expansion look to the experience of other states. We believe that the number of uninsured won't decrease at all, people will be shifted from private insurance to Medicaid, and that uncompensated costs we must subsidize will increase, not decrease. We believe this because of experience.

I've talked before about the experience of other states. People are critical about using Arizona's experience, as they regard it as too different from New Hampshire. But perhaps the best example is Maine. Maine expanded Medicaid in 2003 with the same goals as the current expansion. New Hampshire, a neighboring state with almost precisely the same population, did not.

When Maine expanded Medicaid in 2003, supporters expected to save millions on charity care by shifting the uninsured into Medicaid. But over the decade of reform, the percentage of those under age 65 without insurance started at 12 percent and ended at 12 percent with little variation in between. Over the course of the same decade, New Hampshire's percentage went from 11 to 11. Plot the two lines on a graph and you'll see precious little up or down, and the two stay next to each other.

What happened? Well, in Maine the percentage of people on Medicaid went up by 7 percentage points and the percentage with private insurance went down by seven percentage points. The same experience happened in all the other states that expanded Medicaid in the last decade. For example, while the percentage of uninsured stayed the same in Arizona, the percentage on Medicaid went up five points and the private percentage went down by 5.

This seems counter-intuitive to many people. They think this can't and wouldn't happen. But it does. The term for it is the crowd-out effect. No one would prefer Medicaid to almost any private insurance if they were priced the same — but Medicaid will be free.

Without question, some people currently without insurance will adopt Medicaid. But in the aggregate, the change will mostly consist of people switching from paid insurance to free Medicaid. That has been the experience of every state. We can't expect that this time it will be different if we aren't doing anything different.

Why does this matter? Well, the other expectation of expansion is to lower the cost shift. Currently, hospitals receive only about 50 percent of their costs for Medicaid patients. In addition, about 5 percent of their revenue is lost to bad debt (patients expected to pay who don't) and charity care (patients who are treated but cannot afford to pay).

Those uncompensated costs are made up by charging privately insured patients something like 140 percent of the cost. Hospitals often support Medicaid expansion on the hope that some of their charity care patients will be shifted into Medicaid, reducing the needed subsidy from private patients.

In Maine, charity care payments (care for lower-income uninsured) increased from $62 million in 2004 to $215 million in 2011, an increase of 247 percent. In New Hampshire, by comparison, hospital charity care for the same time period grew from $99 million to $240 million, an increase of a much smaller 142 percent. That expansion didn't help with charity care costs isn't surprising when we know that the percentage of uninsured didn't change, but private insurance declined.

Much of the current debate in New Hampshire is based on assumptions that are the opposite of recent experience. Those assumptions account for most of the difficulty the two sides have in even understanding their counterparts' position.

Is it a good public policy to adopt a program we can tell from experience will largely just shift people from private insurance to Medicaid? If we want to go forward and do the same thing, why would we expect our outcome to be any different from that of every other state?

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.